8/25/22, 3:44 PM India Ratings and Research: Most Respected Credit Rating and Research Agency India

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India Ratings Downgrades Aria Hotels and

Consultancy Services to 'IND BB+’; Outlook Negative
Jun 18, 2021 | Consumer / Retail

India Ratings and Research (Ind-Ra) has downgraded Aria Hotels and Consultancy Services Private Limited’s (AHCSPL)
Long-Term Issuer Rating to ‘IND BB+’ from ‘IND BBB’. The Outlook is Negative. The instrument-wise rating actions are as
follows:

Instrument Date of Coupon Maturity Size of Rating/Outlook Rating Action

Type Issuance Rate Date Issue
(million)

Term loan December INR5,304.1 IND BB+/Negative Downgraded

2036 (reduced from
INR5,307.29)
Fund-based NR75 IND Downgraded
working BB+/Negative/IND
capital limits A4+

The downgrade reflects the significant deterioration in the financial and operational performance of AHCSPL’s parent -
Asian Hotels (West) Limited (AHWL; ‘IND D’; holds 99.98% stake in AHCSPL; together referred to as the Asian group) in
FY21 and its subsequent default on its obligations, the temporary halt in operations due to lack of liquidity in 1QFY22, and
the presence of a cross-default condition in a lender’s sanction letter. The downgrade also factors in the corporate
governance issues in the Asian group.

The Negative Outlook reflects Ind-Ra’s expectation of the continued impact of COVID-19-led disruptions on the company’s
financial performance in FY22, leading to weaker-than-expected credit metrics and a stretched liquidity position.

Key Rating Drivers

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Default of AHWL: The parent company, AHWL's financial profile deteriorated significantly in FY21 due to a stretch in
liquidity because of the continued impact of COVID-19-related disruptions on its business. The company defaulted on its
repayment obligations at end-April 2021 and temporarily halted its operations on 8 June 2021. According to the lender`s
sanction letter, a portion of AHCSPL’s debt has a cross-default condition with AHWL.

Corporate Governance Issues: The ratings also factor in the resignation of two independent directors from the board of
AHWL on 8 June 2021. The independent directors stated the chairperson's failure to convene a board meeting despite the
requests and directions of the audit committee and independent directors as a reason for their resignation. An
independent director also stated that there is an atmosphere of hostility among the promoters. AHWL and AHCSPL have
common promoters and several common members in their board of directors.

Tie-up with the Marriot Group; Favourable Location: AHCSPL has tied up with Marriott Hotels India Private Limited
(Marriott) for branding, operating, and marketing of the hotel under the JW Marriott brand. The company continues to
benefit from its management’s expertise and access to the online reservation systems and marketing strategies of JW
Marriott, which is a globally recognised hotel brand. Furthermore, the hotel is situated in the hospitality district at Delhi
Aerocity, adjacent to the Indira Gandhi International Airport, and is also well connected with the central business districts
of Delhi and Gurgaon.

Weak Business Outlook: After having recovered in 4QFY21, AHCSPL’s hotel operating performance moderated in April
2021 owing to the impact of the lockdown restrictions placed by the state government to curtail the second wave of
COVID-19. AHCSPL`s occupancy levels, which had improved to 60.2% in 4QFY21 (3QFY21: 38%, FY20: 80%),
moderated to 41.7% in April 2021. However, the average room rent increased to INR5,321 in April 2021 (4QFY21:
INR5,005; FY20: INR9,932).

The company’s revenue fell sharply to INR616.60 million in 9MFY21 (9MFY20: INR2,317.87 million, FY20: INR2,944.90
million). With high fixed cost component in overall cost and lower absorption of the same due to the fall in revenue,
AHCSPL’s EBITDA plummeted to INR54.99 million during 9MFY21 (9MFY20: INR985.70 million, FY20: INR1,211.01
million), given the high fixed cost component in overall cost. Ind-Ra expects the revenue and EBITDA to have decreased
on a yoy basis in FY21. The agency expects the company’s hotel operations to be adversely affected in the short-to-
medium term on account of the extended impact of COVID-19 on the global travel and hospitality industry. However, the
corporate and leisure travel segments are likely to witness an improvement over the same period with the commencement
of the vaccination program, and improving economic outlook. With the subsequent easing of restrictions, AHCSPL’s
occupancy rates are likely to report a sequential improvement post 1HFY22, leading to growth in the company’s revenue
and EBITDA in FY22.

Liquidity Indicator - Stretched: AHCSPL’s average use of the fund-based limits of INR75 million was around 98% during
the 12 months ended February 2021. The company had unencumbered cash and equivalents of INR344.2 million as on
31 March 2021. The company’s cash flow from operations are likely to have turned negative in FY21 (FY20: INR501.40
million, FY19: INR517.50 million), given the decline in the scale of operations and EBITDA levels. AHCSPL had not
availed the Reserve Bank of India-prescribed debt moratorium.

Weak Credit Metrics: AHCSPL’s credit metrics are likely to have deteriorated in FY21 due to the decline in EBITDA and
increase in debt levels. In FY22, Ind-Ra expects the credit metrics to remain weak but improve marginally but due to the
likely moderate growth in the revenue and EBITDA of the company. AHCSPL’s metrics had improved in FY20 because of
the rise in EBITDA levels, with net leverage (net debt/EBITDA) of 4.25x (FY19: 4.61) and interest coverage (operating
EBITDA/gross interest expense) of 2.09x (1.91x). The agency expects the fixed cost coverage (operating
EBITDAR/(interest payment+ principal repayment + lease payment) of 0.9x-1.5x over FY22-FY24.

Rating Sensitivities

Positive: Future developments that could, individually and collectively, result in a positive rating action are as
follows:
- substantial improvement in the financial and operational performance of the parent, AHWL

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- substantial improvement in the company’s scale of operations as well as liquidity profile

- improvement in the corporate governance of the group
- fixed cost coverage above 1.1x on a sustained basis

Negative: Future developments that could, individually and collectively, will result in a negative rating action are as
follows:
-lower-than-expected scale of operations or/ and operating margins
-fixed cost coverage below 1.1x
-the absence of any improvement in the liquidity position

Company Profile

Incorporated on 11 May 2007, AHCSPL has developed a 523-room five-star hotel at Delhi Aerocity that became
fully operational in April 2015. AHCSPL has tied-up with Marriott Hotels India for branding, operating and marketing
the hotel under the JW Marriott brand. The hotel also has a commercial block of about 132,940 square feet of super
area.

Financial Summary

Particulars FY20 FY19

Revenue (INR million) 2,944.90 2,834.62

EBITDAR (INR million) 1,329.01 1,272.06

Total debt (INR million) 5,346.10 5,612.42

Cash and cash equivalent (INR million) 647.00 622.49

Total adjusted net debt+ lease payment/operating EBITDAR (x) 4.25 4.61

Source: AHCSPL, Ind-Ra

Solicitation Disclosures

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer,
and therefore, India Ratings has been compensated for the provision of the ratings.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold
any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or
any issuer.

Rating History

Instrument Type Current Rating/Outlook Historical Rating/Outl

Rating Type Rated Rating 12 March 2021 9 July 2020

Limits
(million)
Issuer rating Long-term - IND BB+/Negative IND BBB/Negative IND BBB/RWN IN

Fund-based working capital limits Long-term/Short-term INR75 IND BB+/Negative/IND A4+ IND IND
BBB/Negative/IND BBB/RWN/IND BB
A3+ A3+/RWN
Term loan Long-term INR5,304.1 IND BB+/Negative IND BBB/Negative IND BBB/RWN IN

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Complexity Level of Instruments

Instrument Type Complexity Indicator

Fund-based working capital limits Low

Term loan Low

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

Contact

Primary Analyst
Aditya Popuri
Analyst
India Ratings and Research Pvt Ltd
DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurugram Haryana - 122002
+91 124 6687266
For queries, please contact: infogrp@indiaratings.co.in

Secondary Analyst
Anant Agarwal
Senior Analyst
0124 6687271

Chairperson
Abhash Sharma
Director
+91 22 40001778

Media Relation
Ankur Dahiya
Senior Manager – Corporate Communication
+91 22 40356121

APPLICABLE CRITERIA

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